WD to buy Hitachi GST for $4.3 billion

Posted on March 07, 2011

By Sean Michael Kerner

Consolidation in the storage industry continued today with Western Digital’s announcement that it plans to acquire Hitachi Global Storage Technologies (Hitachi GST) in a transaction valued at $4.3 billion ($3.5 billion in cash and 25 million shares of WD stock valued at approximately $750 million). Hitachi GST is a wholly-owned subsidiary of Hitachi Ltd.

The deal is expected to close in the third calendar quarter of 2011. Hitachi's storage division has its roots in IBM's hard disk drive (HDD) business, which Hitachi acquired in 2002 for about $2 billion.

"There is an aligned path to this consolidation. I won't say easy, but I say aligned," said John Coyne, Western Digital’s CEO. "We don't underestimate the challenges, but we believe there are structural differences that will help us put these two businesses together and continue to grow profitably."

Consolidation in the HDD market is not new. Rival Seagate acquired Maxtor for $1.9 billion in 2005.

"We view WD's acquisition of HGST as a competitive negative for Seagate," Aaron C. Rakers, an analyst with Stifel Nicolaus, wrote in a research note on the proposed acquisition.

The acquisition could also have ramifications for the solid-state disk (SSD) drive market. “We would view WD’s market presence, coupled with the HGST/Intel joint venture for SSDs (and HGST’s standalone presence in the enterprise-class HDD market), to represent a competitive focal point/negative for STEC,” Rakers noted.

Prior to the acquisition closing, Coyne stressed that it will remain “business as usual” at Western Digital. "We will . . . approach the market in the same way we have before this announcement," Coyne said.

WD officials said that they would retain the Western Digital name and remain headquartered in Irvine, CA.

Shares of Western Digital [NYSE:WDC] soared on news of the announcement, at one point jumping nearly 20% to $35.78 in Monday morning trading.